VW dealer in U.S. defies council, sues automaker for damages from diesel scandal

WASHINGTON -- Three Volkswagen dealerships owned by the Illinois-based Napleton Automotive Group sued the automaker Wednesday, defying a VW dealer council effort to dissuade retailers from using courts to tackle grievances caused by the automaker’s diesel-emissions crisis.

The 111-page lawsuit seeks class-action status and accuses VW of defrauding retailers, according to a statement from Hagens Berman Sobol Shapiro, the Seattle-based law firm representing the Napleton dealerships.

Hagens Berman also represents thousands of VW diesel owners who have sued the automaker following the 6-month-old scandal.

Napleton’s suit accuses VW of engaging in a “criminal racketeering enterprise” with its diesel-emissions violations and says the company violated state and federal laws designed to protect dealer franchisees.

The suit alleges VW “carried out a systematic, illegal pricing and allocation scheme that favored some dealers over others and illegally channeled business” to Volkswagen Credit, its captive finance arm, according to the statement.

Second suit

The lawsuit marks the second time in four months that an automaker has been sued by Napleton dealerships.

In January, two Napleton-owned Fiat Chrysler dealerships sued FCA US, alleging among other things that the automaker incentivized certain dealers to report false sales. The January lawsuit was never served on FCA and was amended in March to add five other Napleton-owned dealerships as plaintiffs.

In late March, FCA called the Napleton suit “baseless” and an “attempt to smear” FCA in seeking to formally dismiss the case.

In 2014, Napleton also filed suit against Jaguar Land Rover after the UK automaker exercised its right of first refusal to block the sale of five of its dealerships on Long Island to Napleton.

Rigged vehicles

Volkswagen has admitted to rigging some 11 million vehicles worldwide with software that masks excess emissions in government lab tests. That includes about 482,000 VWs powered by 2.0-liter diesels in the U.S.

Also mentioned in Napleton’s suit was its acquisition of a VW dealership in Urbana, Illinois, a deal completed just three days before the EPA’s Sept. 18 announcement of VW’s emissions violations.

Steve Berman, the attorney representing Napleton’s stores, called the deal a “sickening display of VW’s disregard for its dealer franchisees,” saying in a statement that VW “withheld the truth and pushed the sale through, knowing well that Ed Napleton was purchasing a dealership that would almost immediately plummet in value.”

The suit marks a boiling over of the long-simmering tensions between VW and its U.S. retailers, who have grown increasingly frustrated by what they say is a lack of updates from the factory on finding a fix for the problem. The lawsuit also adds a new layer of litigation facing the automaker, on top of the hundreds of cases filed by consumers, states and the federal government over the emissions violations.

During the National Automobile Dealers Association convention in Las Vegas last weekend, VW’s dealer council formed a six-member committee to negotiate a settlement for dealers whose businesses have been damaged by the crisis. That effort was designed in part to reduce the risk of a large number of dealers turning to the courts to recover damages.

Dealers and attorneys said the filing of lawsuits would hinge upon whether VW could convince them that the company had a road map for how it planned to rebuild its U.S. business and how it would make customers and dealers whole.

No such plans were disclosed, according to dealers who attended the meeting.

“What is really discouraging and led me to file this lawsuit is that Volkswagen has wholly failed to respond to dealer concerns in a substantive manner,” Ed Napleton, president of the Napleton Automotive Group, said in a statement. “It has talked for months about multiple plans, but done nothing and left us dealers in the red, and in limbo.”

Alan Brown, chairman of VW’s dealer council, and Jason Kuhn, head of the Dealer Investment Committee formed for the settlement talks, said the lawsuit does not reflect the desires of VW dealers broadly, an “overwhelming majority” of whom believe it is “vital” to settle their concerns with VW outside court. Brown is also general manger of Lewisville Volkswagen near Dallas, and Kuhn is chairman of Tampa, Florida-based Kuhn Automotive Group.

“It is not unexpected that a few outlier dealers would file a lawsuit against VW. Some dealers view litigation as an end-game strategy and nothing more,” Brown and Kuhn said in a joint statement. “Filing a lawsuit may provide a headline or two, but it is substantially longer, more contentious and a much more costly path towards a settlement.”

VW is reviewing the complaint, according to a spokeswoman.

“The Company is committed to resolving the U.S. regulatory investigation into the diesel emissions matter as quickly as possible and to implementing a solution for affected vehicles, as we work to earn back the trust of our customers and dealers and the public,” the VW spokeswoman said in a statement.